Louvre Accord

The Louvre Accord was signed in Paris on 22 February 1987 between the representatives of the G6 (France, West Germany, Japan, USA, UK and Canada ). Objective of the agreement was to stabilize exchange rates within defined target zones to avoid speculative excesses and related global economic dangers. In particular, since 1985, sustained as a result of the Plaza Accord depreciation of the U.S. dollar against the other currencies should be stopped.

Goals and Objectives

In the medium term degradation of the twin deficits of the United States should be achieved by the Agreement. The United States reaffirmed its intention to reduce its budget deficit, while the remaining participants should work towards a balance of trade deficit by fiscal measures (in particular raise interest rates and lower protectionist trade restrictions ).

The exact target zone exchange rates were recorded in an Additional Protocol, which was never published, so as not to give investors the opportunity to speculate against these exchange rates. It is believed that the targeted rate of the dollar should not vary by more than 5% to DM 1,825 or 153.50 yen.

Participants committed in the Agreement, several times a year to hold meetings, there to advise the exchange rate development and to coordinate their actions influence it.

Follow

In the months after the signing succeeded initially to stabilize the dollar. However, the end of September 1987 increased the short-term interest rates in Germany. Shortly afterwards appeared from the trade data of August that the U.S. trade deficit was only slightly decreased, interest rates rose across all maturities in the USA. Subsequently, the then U.S. Treasury Secretary James Baker expressed his displeasure over the development in Germany and held the German Government before, not to adhere to the conditions of the agreement. Rumors in the media have been raised that the target zone must be reduced for the U.S. dollar, or would even break apart the cooperation between the G7 countries. The international dispute intensified the uncertainty in the currency markets, and the dollar depreciated 16-17. October abruptly to 1.77 DM. On October 18, Baker finally announced in the New York Times, its intention to support the falling dollar no further. These currency fluctuations are used as a reason for the stock market crash of October 19, 1987 saw the became known as "Black Monday " in the story.

Also, the further appreciation of the yen, which contributed decisively to the resulting bubble economy in Japan, could not be stopped by the Louvre Accord.